The Precious Metals Week in Review – April 29th, 2022

1. Volatility remains elevated as the conflict between Russia and Ukraine shows no signs of a resolution any time soon. Stocks remained volatile as they headed into the end of the month, with the S&P 500 on track for its worst month since March 2020 when the spread of Covid-19 began triggering economic shutdowns across the globe. The Nasdaq was on track for its worst month since 2008 and the Dow Jones Industrial Average was plunging on Friday. The Covid-19 related shutdowns in China continue to show signs of exacerbating supply-chain issues, which have never really recovered from the previous lockdowns which forced manufacturing around the world to slow to a crawl.

2. For the week ending April 23, the seasonally adjusted number of Americans filing initial claims for unemployment decreased by 5,000 from the previous week’s revised level to reach a new level of 180,000. The previous week’s level was revised higher by 1,000 claims. The 4-week moving average of claims was 179,750, an increase of 2,250 from the previous week’s revised moving average. The previous week’s moving average was revised higher by 250 claims.

3. On Thursday, the U.S. Commerce Department reported that Gross Domestic Product (GDP) in the U.S. unexpectedly declined in the first quarter, falling 1.4% on an annualized basis and a far cry from expectations for a 1% gain. Most of the decline in GDP was due to rising prices and inflation. Goldman Sachs now sees a roughly 35% chance of negative growth in the U.S. over the next year. Most economists still expect the Federal Reserve to be able to stave off an outright recession, but Deutsche Bank sees the chance of a “significant recession” hitting the economy sometime in late 2023 and early 2024. The bank projects that the Fed will have to tighten far more rapidly to counter inflation than analysts currently expect.

4. In other key data on inflation, Core Personal Consumption Expenditure Prices, one of the Federal Reserve’s favorite gauges of inflation, rose 5.2% (excluding food and energy) in March from one year ago. Including food and energy, the PCE rose 6.6%, its fastest pace of increase since 1982, according to the Bureau of Economic Analysis. A separate measure of inflation, the employment cost index, climbed by 1.4% over the past quarter even as inflation-adjusted income for employees dipped 0.4%. The cost of living due to surging inflation continues to outpace worker pay increases.

5. Intel announced its earnings this week and beat on both the top and bottom lines for the first quarter. The company forecast week quarterly guidance however as it noted that inventory challenges could continue as Covid lockdowns in China impact supplies. Intel said that it fully expects the ongoing semiconductor shortage to continue, with CEO Pat Gelsinger telling analysts on the conference call “we expect the industry will continue to see challenges until at least 2024 in areas like capacity and tool availability.”

6. As Western nations continue supplying weapons and other forms of aid to Ukraine to assist its attempts to repel Russia’s invasion of its sovereign territory, Russian President Vladimir Putin is ramping up his rhetoric. Putin warned that there would be “lightning-fast” retaliation should any country interfere with its efforts to seize territory in Ukraine. On Thursday, Russian foreign ministry spokesperson Maria Zakharova told reporters “In the West, they are openly calling on Kyiv to attack Russia including with the use of weapons received from NATO countries. I don’t advise you to test our patience further.” Zakharova also seemed to suggest that the conflict could spread outside of Ukraine, saying “Kyiv and West capitals should take the statement from the Ministry of Defense seriously that further inciting of Ukraine to strike Russian territory will definitely lead to a tough response from Russia.”

7. Russia appears to have narrowly avoided defaulting on its sovereign debt after attempting to make the payments on its dollar-denominated bonds in Russian rubles. The Finance Ministry said that it had tapped domestic reserves and was attempting to make the overdue payments in U.S. dollars to cover its debt obligations. According to the ministry, Russia made a payment of $564.8 million on a 2022 Eurobond and another payment of $84.4 million on a 2042 Eurobond – both in dollars. The funds were moved to the London branch of Citibank, but it has yet to be determined if they have, or will, reach the intended recipients. The payments were already well into a 30-day grace period and would have officially defaulted on May 4.

8. Russia’s state-owned energy company Gazprom cut supplies of natural gas to both Poland and Bulgaria this week after those two nations refused to pay for supplies of natural gas in Russian rubles. The move led European Commission President Ursula von der Leyen to accuse the Kremlin of trying to blackmail the European bloc – a claim dismissed by the Kremlin. Analysts at Gavekal, a financial research firm, said in a Thursday note that “Russia’s move to halt gas flows to Poland followed Berlin’s decision – under intense political pressure – to supply Ukraine with air-defense weaponry. The implied threat is that Russia will cut off Germany’s gas supplies if Berlin continues to ship arms to Ukraine. The economic effects would be catastrophic.” Von der Leyen said on Wednesday that in addition to supplies it has already secured via an agreement with the U.S., the bloc is “working hand in hand with our Member States to secure alternative gas supply from other partners, too.”

9. China continues to face both full and partial lockdowns as it battles the spread of another outbreak of Covid-19. Wood Mackenzie’s head of APAC economics, Yanting Zhou, said in a note to clients “With both full and partial lockdowns ramping up since March, China’s economic indicators have plunged further into the red. We now expect China’s GDP to slow further in Q2.”

10. Fears over Russian oil supply disruption outweighed the continued lockdowns in China to turn oil positive for the week. Brent crude futures settled at $109.34 per barrel while U.S. West Texas Intermediate futures settled at $104.69 per barrel. The moves sent both contracts to their fifth straight month of gains. Russia’s move to cut off gas supplies to Poland and Bulgaria has analysts projecting a possible surge in demand in other international markets as other countries in Europe begin to look seriously for somewhere else to purchase their energy supplies in case they find themselves facing the same fate.

11. The euro blipped higher against the U.S. dollar at the start of trading this week and then began a steady decline that saw it reach its lows by late in the day on Thursday. The euro bounced along sideways through overnight trading on Thursday and then began struggling higher Friday morning. The euro could not maintain its upward momentum however and will finish out the week to the downside against the U.S. dollar.

12. The yen moved sideways against the U.S. dollar at the start of trading for the week, but then began drifting higher, staying in a narrow trading channel through mid-week. On Wednesday the yen reversed course, drifting into negative territory on Thursday and then accelerating its declines to touch its lows around mid-day. The yen then began a slow climb back towards opening levels but could not maintain enough upward momentum to carry it back into positive territory and will finish out the week slightly to the downside against the U.S. dollar.

Russia’s invasion of Ukraine entered its third month this week, with no signs of coming to an end soon. Russia even went so far as to strike Ukraine’s capital city of Kyiv with missiles while the UN chief and the Prime Minister of Bulgaria were visiting and present inside. Russian President Vladimir Putin continued to spout rhetoric against NATO member countries that have been aiding the embattled nation, saying that continued foreign intervention in Ukraine would result in a “lightning-fast” response from Moscow due to that intervention creating “strategic threats for Russia.” He went on to say that Russia has “tools” for retaliating “that no one else can boast of having now… we will use them if necessary.” Liviu Horovitz, a nuclear policy researcher at the German Institute for International and Security Affairs told CNBC when asked about the threats “Both the United States and Western European governments have repeatedly said that they have no interest in escalating this conflict beyond Ukraine, and I don’t see anything suggesting that NATO troops will be fighting in Ukraine anytime soon.”

Inflation indicators in the U.S. surged yet again, with each move higher likely spelling doom for the Democrats currently in control of all branches of the U.S. government. Mid-term elections are fast approaching, and polls show that the Democrats are steadily losing their support base as prices continue to climb. Federal Reserve officials are now fully expected to conduct a 50 basis point rate hike when they meet next month, hoping to rein in levels of inflation that have not been seen since the early 1980s when stagflation and extended periods of low growth ruled. While employee wages have continued to rise, the surge in prices paid by consumers is continuing to outpace any perceived gains. Many workers are basically bringing home less take-home pay than they were before they received their “raise.” Faced with surging costs that are outpacing their gains in income, many consumers have begun dipping into their savings just to try to get by.

Geopolitics and skyrocketing inflation remain the primary areas of concern for investors. China’s continued lockdowns in response to spreading Covid-19 cases could also seriously impact already strained supply chains. Several Chinese ports and logistics operations have been affected by the shutdowns, which stretch from Shenzhen to Shanghai and there is a major backlog of shipping vessels piling up offshore, particularly in Shanghai. Many major cities have completely suspended business activity and transportation as well, meaning parts that are usually manufactured in China and shipped abroad are at a standstill. Market volatility remains elevated, and investors continue to perform risk analysis on their portfolios to ensure that they are sufficiently diversified in the hopes that it will offer a measure of protection against a large correction in any one sector. Many investors have continued to seek out buying opportunities, in the form of temporary price dips, that will allow them to add additional physical precious metals to their portfolios for diversification purposes. Always remember, however, that the key to profitability through the ownership of physical precious metals is to acquire the physical product and hold it for the long term. Always remember that you should never overextend your ability to maintain ownership of your precious metals over the long run.

Trading Department – Precious Metals International, Ltd.

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